Questions and Answers of Essentials of Economics

Figure 17-10 shows the actual budget deficit and the cyclically adjusted budget deficit as a percentage of GDP in the United States from 1965 to 2018. Assuming that potential output was unchanged,
According to Table 11-3, what effect does the U.S. welfare state have on the overall poverty rate? On the poverty rate for those aged 65 and over?Data From Table 11-3:- TABLE 11-3 Effects of
How might the behaviour of firms differ during periods of negative and positive output gaps?
Under what circumstances would sustainable output (i.e. a zero output gap) move further away from the full-capacity output ceiling shown in Figure 10.6 in the textbook?
Are worries about the consequences of economic growth a ‘luxury’ that only rich countries can afford?
Referring to the figures in the table, which countries’ actual exchange rates would seem to understate the purchasing power of their currency?
The following table shows UK nominal GDP for the years 1990, 1992, 2008, 2010, 2019 and 2021. It also shows the GDP deflator, where 2019 = 100.1. Work out the real GDP for each year based on 2019
1. Continue the analysis for periods 4 and 5.2. Continue the table for periods 13 and 14.3. Why are multiplier/accelerator models such as these of little practical use in predicting the precise
1.Can you identify any time lags in the graph? Why might there be time lags?2.Why does investment in construction and producer goods industries tend to fluctuate more than investment in retailing and
1. Why is cash in banks and building societies not included in M4?2. What are the benefits of including these additional items in the broad measure of money supply (M3 or M4)?
1. How does the easy availability of credit affect the problem of inequality?2. How might the actions of banks exacerbate the credit cycle?
How would you explain the shapes of the countries’ curves in the above chart?
1. What is the difference between the actual and cyclically-adjusted budget deficit? 2. Under what conditions would we expect the actual deficit to be bigger or smaller than the cyclically-adjusted
1. Could resource crowding out take place at less than full employment?2. What is the connection between financial crowding out and resource crowding out?
In what ways is the Fed’s operation of monetary policy (a) similar to; (b) different from the Bank of England’s?
1. In what senses could these new policies be described as (a) non-interventionist; (b) interventionist?2. Does globalisation, and in particular the global perspective of multinational corporations,
1. Explain what is meant by the term ‘trade as an engine of growth’?2. What factors might explain the relatively small trade values in commercial services of African economies?
Go through each of the four arguments and provide a reply to the criticisms of them.
What alternative economic strategy might the US government adoptto improve the competitiveness of steel producers?
1. Identify the options open to UK exporters who are faced with a high and rising value of sterling?2. The overall balance of payments must always balance. If this is the case, why might a deficit on
Assume that an American firm wants to import Scotch whisky from the UK. Describe how foreign exchange dealers will respond.
If the central bank wanted to achieve a lower rate of inflation and also a higher exchange rate, could it under these circumstances rely simply on the one policy instrument of interest rates?
Consider the costs and benefits to the world economy of the substantial fall in the price of oil, such as that in mid-2008 and from 2014 to 2016, in early 2020 and from mid-June 2022.
1. Which of the two, vertical or horizontal B2B marketplaces, is likely (a) to offer the greater potential increase in competition; (b) to pose the greater potential danger to competition?2. Apart
1. How might you measure X inefficiency?2. Another type of inefficiency is productive inefficiency. What do you think this is? (Clue: it has to do with the proportions in which factors are used.)
1. Make a list of those factors that determine the contestability of a particular air route.2. In the UK, train operators compete for franchises to run services on a particular route. The franchises
Are the large oligopolistic bakers and the small bakers catering for the same market?
1. What are the characteristics of the razor market that present barriers to entry for new firms? How did KMI seek to overcome these?2. High levels of innovation have been seen in the market for wet
1. What conditions facilitate the formation of a cartel? Which of these conditions were to be found in the oil market in (a) the early 1970s; (b) the mid-1980s; (c) the mid-2010s?2. Could OPEC have
Do you feel the classification of business strategy options into cost leadership, differentiation and focus is adequate to describe the strategic approaches businesses might adopt?
1. In what respects do hypergrowth companies share the same characteristics as enterprises in the small business sector?2. Why is there potentially greater opportunity for small businesses, rather
1. If, over time, consumers are encouraged to switch their consumption to off-peak periods, what will happen to peak and off-peak prices?2. To what extent is peak-load pricing in the interests of
Is the strategic behaviour referred to in the second quote consistent with the kinked-demand curve theory?
1.Which of the following is more likely to be consistent with the aim of maximising profits: pricing on the basis of (a) cost per unit plus a variable percentage mark-up; (b) cost per unit plus a
What factors, other than the ones identified above, could account for the decline in union membership in recent years?
What will workers be trying to maximise?
1. Does this argument also apply to food and other basic goods?2. If healthcare is provided free, the demand is likely to be high. How is this high demand dealt with? Is this a good way of dealing
1. Green taxes (e.g. on carbon emission) are designed to ‘internalise’ environmental externalities and thereby force firms to take such externalities into account in their decision making. Should
Is it a good idea to use the revenues from green taxes to subsidise green alternatives (e.g. using petrol taxes for subsidising rail transport)?
Explain how, by varying the charge debited from the smart card according to the time of day or level of congestion, a socially optimal level of road use can be achieved.
1. What features of the market for EWs distorted competition?2. To what extent has the ruling by the government made the market for EWs competitive?
In what ways might a leniency programme actually increase the likelihood and stability of cartels? Why is it so important that full immunity is limited to a single firm?
1. What possible advantages to the consumer could there be in (a) National Grid plc having a monopoly over the operation of the national transmission system (NTS) and (b) British Gas (BG) regaining a
1. Does vertical integration matter if consumers still have a choice of suppliers and if generators are still competing with each other?2. Wholesale and retail energy markets are expected to deliver
What is likely to be the impact of rising levels of intra-regional trade for the world economy?
Why doesn’t the USA specialise as much as General Motors or Texaco? Why doesn’t the UK specialise as much as Unilever? Is the answer to these questions similar to the answer to the questions,
To what extent are the arguments for countries specialising and then trading with each other the same as those for individuals specialising in doing the jobs to which they are relatively well suited?
The following are four items that are traded internationally: wheat; computers; textiles; insurance. In which one of the four is each of the following most likely to have a comparative advantage:
It is often argued that if the market fails to develop infant industries, then this is an argument for government intervention, but not necessarily in the form of restricting imports. In what other
What is fallacious about the following two arguments? Is there any truth in either?(a) ‘Imports should be reduced because money is going abroad which would be better spent at home.’(b)
Go through each of the arguments for restricting trade and provide a counter-argument for not restricting trade.
Debate the following: ‘All arguments for restricting trade boil down to special pleading for particular interest groups. Ultimately there will be a net social cost from any trade restrictions.’
Construct a case for restricting trade between the USA and Japan. Are there any arguments here that could not equally apply to a case for restricting trade between Scotland and England or between
The following are the items in the UK’s 2021 balance of payments:£ billionsExports of goods323.56Imports of goods492.77Exports of services330.73Imports of services189.55Net income flows11.87Net
Assume that there is a free-floating exchange rate. Will the following cause the exchange rate to appreciate or depreciate? In each case you should consider whether there is a shift in the demand or
What is the relationship between the balance of payments and the rate of exchange?
What are the main advantages and disadvantages of fixing the exchange rate with a major currency such as the US dollar?
Why may capital inflows damage the international competitiveness of a country's businesses?
What adverse effects on the domestic economy may follow from (a) a depreciation of the exchange rate and (b) an appreciation of the exchange rate?
What are the causes of exchange-rate volatility? Have these problems become greater or lesser in the past 20 years? Explain why.
By what means would a depressed country in an economic union with a single currency be able to recover? Would the market provide a satisfactory solution or would (union) government intervention be
What are the economic (as opposed to political) difficulties in achieving an international harmonisation of economic policies so as to avoid damaging currency fluctuations?
What are the implications for a country attempting to manage its domestic economy if it is subject to an international business cycle? How might it attempt to overcome such problems? The problem is
To what extent can international negotiations over economic policy be seen as a game of strategy? Are there any parallels between the behaviour of countries and the behaviour of oligopolies?
1. What do you think caused the large increase in the price of coffee in 1997?2. Use supply and demand diagrams to explain (a) the fall in coffee prices in the late 1990s and early 2000s, and in the
Referring to the same table, what is the price elasticity of demand between a price of (a) £6 and £4; (b) £4 and £2? What do you conclude about the elasticity of a straight-line demand curve as
1. The income elasticity of demand for milk is negative (an ‘inferior’ good). What is the implication of this for milk producers?2. Why do pork and lamb have relatively high price elasticities of
1. Draw a supply and demand diagram with the price of labour (the wage rate) on the vertical axis and the quantity of labour (the number of workers) on the horizontal axis. What will happen to
What is the effect on output of replacing high minimum prices with grants to farmers unrelated to current production?
1. What common factor might explain the high price paid for drinks on trains or at pop concerns and the high price paid by supporters to watch top football clubs?2. A football club is newly promoted
1. How has the improvement in the quality of own-brands affected the price elasticity of demand for branded products? What implications does this have for the pricing strategy of brand
1. Continuing the analysis from above, what could the producer of Brand 1 do to persuade customers to switch away from Brand 2 and to Brand 1?2. Apply the above analysis to a consumer choosing
How would you advise the baker as to whether he should (a) employ four assistants on a Saturday; (b) extend his shop, thereby allowing more customers to be served on a Saturday morning?
Given that there is a fixed supply of land in the world, what implications can you draw from Figure 1 about the effects of an increase in world population for food output per head?
Why is the current best price to charge for the unsold trees the one at which the price elasticity of demand equals –1? (Assume no disposal costs.)
A cricketer scores the following number of runs in five successive innings:Innings12345Runs202050100These can be seen as the marginal number of runs from each innings. Calculate the total and average
How do you think the supply of labour curve was affected when the UK left the EU?
For what types of reason does the marginal revenue product differ between workers in different jobs?
If, unlike a perfectly competitive employer, a monopsonist has to pay a higher wage to attract more workers, whywill a monopsonist pay a lower wage than a perfectly competitive employer?
The following are figures for a monopsonist employer:Number of workersWage rate(£)Total cost of labour (£)Marginal cost of labour (£)Marginal revenue product
To what extent could a trade union succeed in gaining a pay increase from an employer with no loss in employment?
Drawing on recent examples, consider the extent to which strike action is likely to help trade union members achieve their various aims.
Do any of the following contradict the theory that the demand for labour equals the marginal revenue product: wage scales related to length of service (incremental scales), nationally negotiated wage
‘Statutory minimum wages will cause unemployment.’ Is this so?
What is the efficiency wage hypothesis? Explain what employers might gain from paying wages above the market-clearing level.
Identify the potential costs and benefits of the flexible firm to (a) employers and (b) employees. Have these costs and benefits changed since the start of the global COVID-19 pandemic?
How have changes in society, laws and technology affected the UK labour market?
Provide a case for and against high bonuses.
Some roads could be regarded as a public good, but some could be provided by the market. Which types of road could be provided by the market? Why? Would it be a good idea?
Make a list of pieces of information a firm might want to know and consider whether it could buy the information and how reliable that information might be.
How suitable are legal restrictions in the following cases?(a) Ensuring adequate vehicle safety (e.g. tyres with sufficient tread or roadworthy vehicles).(b) Reducing traffic congestion.(c)
In what ways might business be socially responsible?
What economic costs and benefits might a business experience if it decided to adopt a more socially responsible position? How might such costs and benefits change over the longer term?
Using a demand and supply diagram, explain why carbon prices fell at the beginning of the Emissions Trading Scheme (ETS), due to emissions allowances being too generous.
What problems are likely to arise in identifying which firms’ practices are anti-competitive? Should the CMA take firms’ assurances into account when deciding whether to grant an exemption?
If anti-monopoly legislation is effective enough, is there ever any need to prevent mergers from going ahead?
If two or more firms were charging similar prices, what types of evidence would you look for to prove that this was collusion rather than mere coincidence?
Should regulators of utilities that have been privatised into several separate companies permit (a) horizontal mergers (within the industry); (b) vertical mergers; (c) mergers with firms in other
Assess some of the arguments for and against the imposition of price controls in the retail energy market.
What are the key macroeconomic objectives of government? Are there likely to be any conflicts between them?

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